Legislation filed to reform Louisiana’s corporate tax structure

BATON ROUGE — Today, legislation that makes up the bulk of Gov. John Bel Edwards’ tax reform package was filed in the Louisiana House of Representatives.

The Commercial Activity Tax (C-A-T) ensures that all business entities in Louisiana pay their fair share of taxes, while protecting Louisiana’s small businesses. The C-A-T is part of a broad tax and spending reform package proposed by Gov. Edwards to avoid the fiscal cliff on July 1, 2018.

Gov. John Bel Edwards

The proposal, HB 628, was introduced by state Rep. Sam Jones. The package includes providing a tax cut to more than 90 percent of individual income tax filers in the state and replacing revenue the state will lose by the removal of the fifth penny of sales taxes that will expire in Fiscal Year (FY) 2019.

“Right now, individuals in Louisiana are overly burdened by our current tax and budget structure, while too many businesses use costly credits and exemptions to avoid paying any corporate income taxes,” said Gov. Edwards. “The current system just isn’t working when higher education, K-12 education and programs like TOPS are at risk of deep cuts. This new proposal will level the playing field and provide a tax structure that’s fair and predictable for everyone in Louisiana. Under the comprehensive plan I have proposed, more than 90 percent of individual income tax filers will see a tax cut, and the 80 percent of corporate income tax filers who paid nothing in 2015 will start do their part for doing business in Louisiana. This is the most responsible way to balance our state budget while still funding the priorities our constituents want and deserve.”

Gov. Edwards modified the C-A-T to further protect Louisiana’s small businesses and “pass through entities,” those businesses that choose to be taxed at the individual level, rather than the corporate level.

In FY 2015, 80 percent of Louisiana corporations, or 80,000 out of 101,000, did not pay any state income tax. A C-A-T of 0.35 percent would be leveraged on those corporations with receipts over $1.5 million. Under the modified plan, pass through entities would be assessed a flat tax based on the amount of taxable gross receipts. These business models include Limited Liability Companies (L.L.C.) and Partnerships. For example, if a gas station in Louisiana operates as a L.L.C. and has gross receipts of less than $500,000, their income tax – the M-C-A-T – would only be a flat $250. A doctor’s office that operates as a partnership chooses to be taxed at the individual level with gross receipts of $2.5 million would pay a flat $1,500 C-A-T.

According to the Louisiana Department of Revenue, in FY 16, 39 percent of Louisiana’s revenue came from individual income taxes, 39 percent came from the sales tax, while only 3 percent came from corporate taxes.